Bangladesh's turnaround past India shocks giant neighbour

Indian Home Minister Amit Shah has now got to literally eat his words– his ‘termite’ remark on Bangladeshis nullified by harsh economic realities.

As he battles Covid infection and plans out his party’s impending electoral battle for West Bengal and Assam next year, growth projections of India and Bangladesh is leaving his government headed by his long-time boss PM Narendra Modi high and dry.

According to International Monetary Fund (IMF)-World Economic Outlook (WEO), Bangladesh’s per capita GDP in dollar terms is expected to grow 4 per cent in 2020 to $1,888.

India’s per capita GDP, on the other hand, is expected to decline 10.5 per cent to $1,877 – the lowest in the last four years.  The GDP figure for both countries is at current prices.

But Indian government sources claimed that in Purchasing Power Parity (PPP), India’s per capita GDP in 2020 is estimated by IMF at $6284 against Bangladesh’s $ 5139.

”The IMF data showing Bangladesh overtaking India in 2020 on per capita GDP is a temporary one and India will again overtake Bangladesh in 2021,” said Indian Finance Ministry joint secretary Chandan Heblikar.

He said India was all set to post higher growth rates in dollar terms in 2021, so Bangladesh overtaking India on this score is a short-lived phenomenon.

But Bangladesh’s achievement is no flash in the pan. Atul Thakur listed 15 areas in a graphic presentation (attached) in Times of India’s Thursday edition where Bangladesh has surged ahead of India.

An editorial in the daily titled “Look East India” asserted that Bangladesh’s gains are siginificant and durable. And apart from GDP per capita growth, the editorial flags Bangladesh’s population control success.

India’s economic downslide has long been flagged by leading economists like Jayati Ghose, Ajitava Raychoudhury, World Bank economist Kaushik Basu and Nobel laureates Amartya Sen and Abhijit Vinayak Banerjee.

They have persistently blamed the sharp drop in Indian economic growth to demonetization and then poor handling of Covid-19 pandemic.

Industrialist Rajiv Bajaj have joined these five in rubbishing Modi’s late nation-wide lockdown , saying the Angela Merkel model of selective lockdowns depending on Covid intensity map may have been a better option.

Actually, the IMF projections  makes India the third poorest country in South Asia, with only Pakistan and Nepal reporting lower per capita GDP, while Bangladesh, Bhutan, Sri Lanka, and Maldives all positioned ahead of India.

The WEO database suggests that the Indian economy will be the worst hit from the pandemic in South Asia after Sri Lanka, whose per capita GDP is expected to shrink 4 per cent in the current calendar year.

In comparison, Nepal and Bhutan are expected to grow their economies this year, while the IMF has not divulged Pakistan’s data for 2020 and beyond.

IMF predicts a sharp economic recovery in India next year, which is likely to push per capita GDP ahead of Bangladesh in 2021 by a small margin.

India’s per capita GDP in dollar terms is expected to grow 8.2 per cent in 2021, against an expected 5.4 per cent growth for Bangladesh. This will grow India’s per capita GDP to $2,030 next year, against Bangladesh’s $1,990.

Till five years ago, India’s per capita GDP was nearly 40 per cent higher than Bangladesh’s. In the last five years, Bangladesh’s per capita GDP has grown at a compound annual growth rate of 9.1 per cent, against 3.2 per cent growth reported by India during the period.

Amartya Sen and Kaushik Basu attribute this success to the Hasina government’s commitment to inclusive growth and a push for human development like in areas of health and education, which, in turn, pushes economic growth.

“The sole credit for this high annual growth goes to the Hasina government which has coordinated its economic growth and human development strategies as few countries in Asia has. Only Vietnam might better Bangladesh on this score, not anybody else in South Asia, surely not India or even China,” said economist Indraneel Bhowmik , who teaches in Tripura University and follows Bangladesh closely.

The speed of growth has allowed Bangladesh to close the economy gap with its giant neighbour India.

According to some Western economists, Bangladesh’s economic growth has been underpinned by its fast-growing export sector and a steady rise in rate of savings and investment in the country. In contrast, India’s exports have stagnated in recent years, while savings and investment have declined.

According to the WEO database, India’s economic contraction in 2020 will be its worst since the 1990-91 economic crisis when the per capita GDP had contracted 17.5 per cent in 1991. India’s GDP per capita in dollar terms had last contracted 1 per cent year-on-year in 2012 due to currency depreciation. In all, India’s per capita GDP in dollar terms contracted on eight occasions in 40 years, five of which occurred prior to 2000.

India first woke up to the fact that Bangladesh had overtaken it in GDP growth rate when the Asian Development Bank (ADB) updated its Asian Development Outlook (ADO) report in September 2019 – though this was clear from its earlier April 2019 report too.

What the update did was to revise Bangladesh’s GDP growth for 2019 upward from 8% to 8.1% and downward for that of India from 7.2% to 6.5%. Further, it retained Bangladesh’s growth forecast for 2020 at 8% but downgraded India’s from 7.3% to 7.2%.

The official data of both the countries, using their own fiscal calculations, however, show Bangladesh overtaking India in FY18, as shown in the following graph.

That is because of differences in their calculations. Bangladesh’s ‘fiscal year’ calendar is from July 1 to June 30 but that of India is from April 1 to March 31. The ADB uses ‘financial year’ and counts fiscal years of both countries differently – for example, for it Bangladesh’s FY19 ended on 30 June 2019 but that of India will run till 31 March, 2020.

ADB’s report shows Bangladesh is growing richer at a faster rate than India. Its per capita GDP growth overtook India’s in 2017 when it clicked 6% growth compared to India’s 5.8%. It would continue to grow faster in 2020 too – at 6.6%, compared to India’s 5.9%.

Bangladesh is also catching up fast in income with its per capita GNI for 2017 reaching $1,470 against India’s $1,800. The same for some of the other Asian countries are: South Korea – $28,380; China- $8,690; Sri Lanka – $3,850 and Pakistan – $1,580.

As per the UNDP’s 2018 Human Development Indices and Indicators, its Gini coefficient, which measures income inequality (0 representing absolute equality and 100 absolute inequality) for the period of 2010 to 2017 was 32.4, against India’s 35.1. The same for other Asian countries are: South Korea – 31.6, China – 42.2, Sri Lanka – 39.8 and Pakistan -30.7.

It should, however, be kept in mind that Bangladesh is a much smaller country with a population of 161 million – against India’s 1,351 million – and a GDP size of $274 billion – against India’s $2.7 trillion – as per the World Bank data for 2018.

Prof Selim Raihan of the University of Dhaka lists four major drivers and a minor one: (a) exports of readymade garments (RMG) (b) inward remittances (c) sustained growth in agriculture (d) growth in microfinance and (e) public investment in big infrastructure projects. Other experts list ‘women empowerment’ as well.

A distinguishing feature of Bangladesh’s boom is strong growth in its manufacturing (industrialisation) and exports, unlike India’s but very much like Japan, China, South Korea and other Asian economies.

A study by the ADB found Bangladesh to be among the Asian countries with the highest increase in their manufacturing share and output (GDP) growth during the 1970s-2010s, along with Bhutan, Cambodia, Malaysia, South Korea and Thailand. Its manufacturing has grown by a simple average of 10.2% during the past 14 years (FY06 to FY19).

Analysis of data shows the services sector contributes most to the output in both Bangladesh and India while their agriculture is rapidly declining.

For the purpose of comparability, the construction’s share has been deducted from India’s services sector since it is a sub-sector of Bangladesh’s industry, not services.

As the graph makes it clear, Bangladesh’s manufacturing has taken off in a big way and contributes nearly a quarter to its GDP while in India’s case it is still less than a fifth.

Consequently, Bangladesh’s manufacturing is also providing more jobs. Agriculture remains the top job provider but services are fast catching up in both the economies.

Garment sector leads the high manufacturing and export growth

History talks of the dominance of Dhaka’s Jamdani muslin in world trade during the Mughal era, drawing in pots of gold and silver to the subcontinent from Europe. Since it required great skill, it was “costly and could be afforded by only the very rich”.

Now Bangladesh’s garments, both readymade and knitwear, are redefining its economy. Prof Raihan says Bangladesh has emerged as the second-largest exporter of garments after China and constitutes about 45% of its manufacturing GDP and 7% of total GDP. It is also the largest labour-intensive manufacturing sector employing 5 million people, 80% of whom are women, and the fastest-growing sector. It has contributed more than 80% to Bangladesh’s total export since FY13.

Export contributes a great deal to Bangladesh’s growth, contributing 14% to 20% to its national GDP. The sudden dip in export for FY19 is because the data is up to March 2019 while the fiscal year ends in June.

The country’s status as a Least Developed Country (LDC) in the UN list – set to graduate to ‘developing country’ in 2014 – has helped in availing zero-tariff preferences offered by advanced markets like the European Union, China and Canada (India too accords such benefits).

Prof Nisha Taneja of the ICRIER, India points at a few critical other factors: (a) success in upgrading its RMG sector in the global value chain through backward linkages (b) establishment of large scale firms and (c) flexible labour market and low wages. Contrasting the scene with India’s, she says though India too has developed strong backward linkages, its rigid labour laws and decades of restricting RMG production to small scale units inhibited growth of large scale units or achieve economy of scale.

Economist Prof Kaushik Basu has attributed this boom to discarding of the Industrial Dispute Act (IDA) of 1947. Both India and Pakistan inherited it from the British but Pakistan’s military regime repealed it in 1958. This law, he says, has done more harm than good to India by restringing the ability of firms to contract workers and expand labour force.

Sustained agriculture growth

Another key to Bangladesh’s success is its incredible resilience in the face of decreasing arable land, population growth, flood, drought and salinity induced by climate change to improve its agricultural output. It is fast-moving to achieve self-sufficiency in food production – producing 41.3 million ton (MT) in FY18 against the target of 41.57 MT.

The agriculture sector has been grown at an impressive (simple average) rate of 3.5% in the past 14 years since FY06, with the fisheries growing the fastest (simple average of 6.3%), contributing 3.6% to its national GDP and 25% to the agriculture GDP.

It is interesting that Bangladesh’s services have been contributing more than 50% to national GDP and about 40% to employment and yet finds only a passing mention in its Economic Review of 2019 – which runs into 15 chapters and 271 pages.

The following graph highlights the top sub-sectors and their contributions to output.

Some experts on regional integration and connectivity like Prabir De of RIS, Delhi  andSubirBhaumik of CRG, Calcutta  have strongly pitched for the integration of the economies of East and Northeastern Indian states with Bangladesh rather than “leave them at the tail-end of the Indian economy and state-system.”

Bangladesh has emerged as the main driver of regional growth and its natural proximity to East and Northeast India makes it incumbent on Delhi to allow its border states closely integrate in the economic sense with Bangladesh.

Prabir De argues for strong connectivity between East and Northeast India through Bangladesh, if India’s Act East thrust has to make sense. “Indian mainland has to first connect to the Northeast through Bangladesh if India looks East to Southeast Asia.  Bangladesh holds the key to India’s Look East, Delhi needs Dhaka more than the other way around.

By all indications, Amit Shah’s insulting ‘termite’ remark has backfired humiliatingly for India.